Silicon Valley VCs buy India growth story

J Padmapriya & Boby Kurian, TNNMay 17, 2008, 11.45am IST

BANGALORE: The Indian domestic market story is what Silicon Valley lineage venture capital (VC) funds are swearing by.

Technology-purist Valley VCs are tweaking their investment strategies for the Indian region and are actively checking out consumer-styled businesses such as retail, restaurant chains and healthcare. Some would go to the extent of looking at infrastructure ancillary sector and put their faith even in companies that lease cranes and tippers.

As they say, new markets dictate new strategies. Apart from the India consumer story, perhaps what is driving this trend is lack of pure technology firms to pick from as opposed to the Valley R&D ecosystem. "Indian companies have largely been in the services, application of technology and outsourcing space. Funds have been part of that action," says VC trackers.

Over the last several quarters, Valley funds, managed by dyed-in-the-wool technocrats, have been expanding the deal funnel to take a diverse exposure in emerging sectors. "There has been a broad trend of valley funds turning sector-agnostic.

It is still early to comment on this investment strategy," says Alok Mittal of Canaan Partners, one of the few funds that have retained the tech focus. Valley VCs have gone beyond pureplay technology IP-linked companies, broadening their definition to include technology-driven businesses and high on that list is online and mobile services companies.

So, Valley VCs like Mayfield, Matrix Partners, Lightspeed and NEA Indo-US have a basket of sectors to play in. There are about two dozen of these Valley pedigree VCs operating in India out of 50-odd active VCs and some like Canaan, Norwest, and Bluerun have kept the extended technology focus.

According to Venture Intelligence founder Arun Natarajan, "We are seeing a trend of these funds moving towards non-technology and consumer-centric sectors. Funds are going for a broader mandate including online and mobile tech-enabled services and financial services."

The $450 million Matrix Partners India has made seven investments till date out of which four are clearly non-tech, while the others are skewed towards consumer Internet space. "What prompted technology investments in US were factors like high growth, innovation, entry barriers and large market. All these factors that guide the investments are seen across several sectors in India," explains Matrix India Partners MD Avnish Bajaj.